Three Crucial Money Conversations Parents Need To Have Before College

Money Conversation - Three Crucial Discussions Parents Need To Have

Money Conversation - Three Crucial Discussions Parents Need To HaveParents need to have a money conversation before they send their college freshmen off to school. Most new college freshmen have never taken a course in money management or personal finance. Personal finance isn’t taught in America’s high schools. And, it’s up to parents to have a money conversation and discussion about being financially smart before their children learn hard lessons on their own.

A recent survey by USAA.comUSAA found that 82% of parents are discussing budgeting with their soon to be college student. Parents must have a tough money discussion with their children just like they would discussing their expectations and priorities for their children’s academic studies.

A recent @USAA survey found that 82% of parents are discussing budgeting with their college freshmanClick To Tweet

Here are three key topics that parents should discuss with their college bound children during their first year on campus.

Money Discussions Parents Need To Have With Their Children

Building Credit Responsibly

When I left for college, my mother gave me a credit card to use for emergencies. She had me listed as an authorized user of one of her credit cards, and I got one associated with her account with my own name on the card.

The real issue came from us not having a very good and clear discussion before I left about money and what constituted an emergency. Her idea of an emergency and mine turned out to be vastly different when I started charging lunches with friends, clothes, and a host of other things on the credit card.

“Responsibly managing credit is a key part of the financial education that should be happening at this time of our kids’ lives,” says JJ Montanaro, a Certified Financial Planner at USAA. “To that end, I like the idea of helping our kids obtain a low limit credit card or a secured card.”

Other financial experts don’t recommend parents giving their children a credit card as an authorized user on their card. Others simply think that young adults need their own credit cards in order to help them start to build their own credit history.

Another option is for parents to help their college-bound children apply for a secured credit card to start. Many secured cards require a deposit that acts as the card’s credit limit. Many secured credit cards also report activity to the three credit bureaus, which helps young adults build a credit history for other non-secured purchases later in life.

Be sure to check out a USAA Secured Credit Card that can help you build or improve your credit scoreUSAA. The card from USAA is secured by an interest-earning CD, which you set up when you open the account.

“While you can add them as an authorized user, that approach could increase the potential damage of a misstep,” says Montanaro. “Adding [a child] to my $20,000 limit card vs. cosigning a $1,000 card is potentially less dangerous. The beauty of this sort of arrangement is that you can closely monitor what’s happening while they learn the ropes of responsibly managing credit.”

Or, you can send your college freshman to school with a prepaid debit card. Prepaid debit cards have many advantages to them that could benefit your student.

College is a place to learn both academically and life lessons. One-third of parents surveyed by USAA.comUSAA say their children will not have a credit card as they head to college.

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Why Now Is The Time To Close Your Account At The Bank Of Mom And Dad

The bank of mom and dadIf you are in your teens or early twenties, you know that Mom and Dad won’t be there to provide for you forever. You may be just starting to earn your own money from odd jobs and be a long way off from achieving a full financial independence from your parents, but you can start with not asking them for money every time you want to go out with your friends. If you want to go for a drive around town, fill up the car with your own money, or walk instead. It’s time to start standing up on your own, beginning with closing your account at the Bank of Mom and Dad.

Financial dependence and today’s generation

More and more young adults are having difficulty becoming financially independent from their parents, not because of the lack of motivation but because of a number of factors such as poor job prospects and the escalating costs of education. Some young people also have a poor understanding of basic finance and lack budgeting skills, as they have become used to their parents handing them money for every need or want.

And while parents may have taught their children the value of money and the basics of budgeting, young adults may still have a difficult time going out on their own into the “real world,” considering the state of the economy and rising prices of rent and utilities.

Hand-outs from parents

Parents, caring as they are, would still insist on handing their young ones a little bit of extra cash, especially when they see their children struggling with the independent life. Ideally young adults should be responsible for all their personal expenses on their own and not receive monthly stipends from parents, but in real life that seldom happens.

For instance, you may already have a decent job but your income does not seem to cover the monthly rent, your food, and other things you spend on. Is your income really the problem, or your spending?

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